Bank of America’s full influence will hit New England in 2005 as its acquisition of FleetBoston Financial Corp. is completed.

Out-of-state banks foraying into Connecticut and Connecticut-based banks expanding into surrounding states are among the trends expected to mark 2005 in the world of banking. In addition, banks that have relied heavily on mortgage originations and refinancing will have to seek alternatives as interest rates rise.

The new year also will see Bank of America’s full influence hit New England as its acquisition of FleetBoston is completed.

Although it does not yet have a concrete plan or timeline, Bridgeport-based People’s Bank, which now has more than 150 branches in Connecticut, plans to expand into New York’s Westchester County and into southern Massachusetts, according to spokesman Brent Digiorgio. The bank sold its credit card business to The Royal Bank of Scotland Group – parent company of Providence, R.I.-based Citizens Bank – in 2004, setting People’s up to expand. The total amount of People’s managed credit card receivables was about $2.3 billion at the end of 2003.

People’s likely will decide where and when to expand sometime in 2005.

“We’re still evaluating the landscapes,” Digiorgio said.

In the meantime, a bank from New Jersey that boasts branches that are open seven days a week will be moving into Fairfield County, where People’s is based. Cherry Hill, N.J.-based Commerce Bank announced in December that it would open five “prototype stores” in 2005 in Fairfield, Darien, Norwalk, Greenwich and Stamford.

People’s likely will be Commerce Bank’s fiercest competitor, since it has branches in Super Stop & Shop locations that are open seven days a week. A People’s spokesman has said that the bank “[welcomes] the competition.”

But Commerce Bank’s customer service-driven model should help it compete with well-established Fairfield County banks, John Carusone, president of the Hartford-based Bank Analysis Center, said in an interview earlier this month.

“I think Commerce is formidable competition with a unique strategy based on providing the maximum of convenience,” he said.

But major infiltration into Fairfield County can be risky, especially for a plan like Commerce Bank’s, which is entirely based upon start-up branches, Carusone said. Fairfield County is one of the most competitive banking markets in the country and competitors like People’s are well entrenched in that market, he said.

But Commerce Bank has a “unique strategic differentiation,” with its focus on attracting deposits, which allows the bank to save money and offer lower loan rates, Carusone said. “They are a deposit-driven organization,” he noted.

That could spur a competitive reaction among competing banks and Fairfield County consumers could see higher returns on deposits and lower loan rates, Carusone added.

“It should be good for consumers,” he said.

Commerce Bank will – at first – impact Fairfield County banks the most, but rising interest rates will have an effect on banks across the nation.

“The financial [storm] that will hit the banking industry will be the racheting up of interest rates,” Carusone said.

Mortgage rates are expected to rise over the next year, which will cause banks that are “addicted” to originating mortgages and refinancing to seek alternatives, Carusone said. The primary focus of 2005 and early 2006 will be the adjustment to the different economic environment, he noted.

‘A Real Competitor’

There will be more competitiveness between banks’ products and their product pricing, Carusone added.

“The big banks do that real well,” he said.

Bigger banks have “more arrows in their quiver” to take interest-rate risks, he said, and will focus their attention on that area.

Smaller banks will have to take more notice of bigger banks in 2005, especially of Charlotte, N.C.-based Bank of America. BofA announced in October 2003 it would acquire Fleet Bank’s parent company, FleetBoston Financial Corp., to form an institution with $933 billion in assets. In Connecticut, Fleet had 175 branches, as well as approximately 400 ATMs and 5,500 employees.

Now, several months after the acquisition, Bank of America’s signs are going up and the bank will soon bring its programs and special capabilities to New England, which will make a big impact in major areas and will trigger competitive reactions from New England banks, Carusone said.

“I think the community institutions will recognize BofA as a real competitor,” he said.

Connecticut likely also will see occasional takeovers in 2005, as has become habitual in the last few years, Carusone said. The state usually sees two or three a year, he said. Smaller banks will be the focus this year because the landscape of larger banks is well defined.

“BofA’s not going away. Citizens is not going away,” Carusone said.

The state saw several mergers and acquisitions in 2004, including one that resulted in the formation of New Haven-based NewAlliance Bank.

The state approved the merger of three state banks on March 30. The banking commissioner first approved the conversion of The New Haven Savings Bank to NewAlliance Bank and the formation of that bank’s holding company, NewAlliance Bancshares. The commissioner then approved the acquisition by NewAlliance Bancshares of The Savings Bank of Manchester’s holding company, Connecticut Bancshares, and Tolland Bank’s holding company, Alliance Bancorp of New England, according to documents from the Department of Banking.